Thinking In Bets — An Introduction To Probabilistic Thinking [Part One]

One of the best books I read at the start of this year when I was flying to Toronto was Annie Duke’s ‘ Thinking In Bets: Making Smarter Decisions When You Don’t Have All The Facts ‘. With COVID-19 and the lockdown, I decided to ship away many of my books that I don’t read in the small library that I have. This was not one of them. It’s a fantastic book that has taught me a tremendous amount in behavioural psychology and given me a new mental model on how to think about probabilistic thinking.

Annie is a former professional Poker player who has a World Series of Poker (WSOP) gold bracelet and used to be the leading money winner among women in WSOP history. Annie started playing poker whilst visiting her brother during graduate school and used some of the winnings to help pay through college. One of the key takeaways from her book, is that her career in Poker has helped her more clearly understand probabilities and avoiding rushing into poor irrational decisions influenced by emotion.

Annie defines poker as a game of making a series of bets. In said game, like life, a “ bet is a decision about an uncertain future”.

When one makes a bet in a game, a rational person would usually assess the amount wagered (the stake), the prize (total payout) and the probabilities of winning the bet. The implied probability of an outcome is the stake / total payout. When the bet is on independent events of the game and each event in this theoretical game has the same probability which is greater than 0.5, one would expect that on a large amount of bets, one would walk out as the winner. Calculating probabilities outside of a constrained environment such as a game is extremely challenging. However, if one could calculate probabilities in life choices similar to a die roll and you were given a wager where you would win $10 if the number on the die was ever less than 5, then you would expect to win 2/3 of the time. If the die wasn’t rigged and you were able to play 10 rounds with this person, you’d expect to walk away as the net winner. This is a pretty good bet. If we modified the number of game rounds from 10 to 3, and you lost the first two rounds, would you place a bet for the final round?

If you placed a bet on the final round, and lost — how would you feel? Annie writers that many people tend to “ be a victim of the tendency to equate the quality of a decision with the quality of its outcome “. If a person has lost all three rounds despite a 2/3 odd of winning, often times they might feel that their decision to play this three round game was a poor one. On the flipside, if that said person won all three rounds, they might feel that their decision to play the game was a good one. However, when taking a step back and thinking of the game as probabilistic one — the decision to play based on those probabilities was generally favourable and the outcomes don’t really affect this judgment except our own emotions.

Probabilities in making life decisions aren’t usually as straight forward to calculate. However, the rationale on avoiding blaming oneself on the quality of a decision based on the quality of the outcome still applies. Annie recommends thinking about finding practical workarounds. In scenarios where one isn’t sure they have all the right amount of information, it is good to be honest and admit what one does and doesn’t know.

“Thoroughly conscious ignorance is the prelude to every real advance in science”

James Clerk Maxwell

In ‘ Thinking In Bets’, Annie writes that we often make decisions based on secondary information without our own primary research. With many of our irrationalities, the formation of those beliefs is shaped by our evolutionary push for efficiency rather than accuracy. Many of those beliefs, we don’t vet and maintain them even after receiving clear, corrective information. Even when directly confronted with facts that disconfirm our beliefs, we tend to not let faces get in the way and ignore or discredit the new information. Annie says that being smart can actually make this worse, the smarter one is, the better one is at constructing a narrative that supports these beliefs, rationalising and framing the data to fit the argument or existing point of view. This is known as blind spot bias where one is better at seeing others’ biases rather than their own.

When one someone challenges us to bet on a belief, they signal their confidence that our belief is inaccurate in some way. Rather than get defensive and fervently find data points to back our view, we should ideally use this challenge as a trigger to vet our own belief. In rating our own level of confidence about the accuracy of our belief, we can incorporate uncertainty and adjust accordingly. Calibrate your beliefs with percentages and ranges.

“If I were to express to you some sort of opinion or prediction that I had and you were talking to me, you would notice this thing that I do which is I try to actually assign a percentage to it… I actually do that in my personal life… notice I’m giving you a range, I’m not giving you an exact number there but that builds my uncertainty into it. It tells you how certain I am of that belief. I might say I think Citizen Kane won best picture, but I’m like 63% on that. I’m always trying to think how sure am I? What’s my level of certainty or uncertainty is a better way to put it around this belief or prediction that I have? The reason why I think that’s just super helpful in terms of overcoming this is that first of all I’m wrapping in on the front end the possibility that the thing that I believe is not true or the thing that I’m predicting will not happen so that when it doesn’t happen, I don’t consider that a bad outcome. I consider that an outcome that I had already expressed so it’s neither bad nor good. It’s just one of the possible things that could happen.”

Annie Damon, The Science and Strategy of Decision Making

Note in the quote taken from Annie’s blog, ‘The Science and Strategy of Decision Making’, Annie details how she applies ranges as a way to assess levels of certainty and uncertainty in her personal decision making.

This concludes part one of thinking in bets. Part two coming soon. To read more about developing learning loops and more on thinking in bets, stay tuned!

Originally published at https://blog.happyness.design.

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